I spent a couple of years selling used cars at a large dealership in Phoenix and I can tell you that some of the stunts I saw pulled were ridiculous. Now I was never shy about asking for full sticker price on a car, that was my job. What I’m talking about is the manipulation of customers to increase profits to the dealership through various financing schemes. There is ONE thing that you SHOULD buy in the finance department and that is GAP insurance. Anything else is a waste of money unless you are buying an older vehicle with a lot of miles and no service records.  Now that I’ve vented a bit, let me tell you how to save not only money but time on your next car purchase.

Here are the steps that I follow.

  1. First and foremost understand that you are buying a CAR. It’s an inanimate object, not a living creature. If you want something to love and will love you back, get a dog. If you don’t care if it loves you back, get a cat. In other words, DON’T get emotionally attached to the car until you have it paid off. Until then, it isn’t really yours. Miss a couple of payments and you’ll find out pretty fast who it really belongs to.
  2. ALWAYS arrange your own financing BEFORE going to the dealership. It will allow you to know exactly how much you can afford to spend and give you the ability to simply say “Do you want to sell me the vehicle or not?” Having a letter of approval from a lender lets the dealer know that you are not there to just kick tires and waste time, if they can get you what you want at the necessary price, you can buy it. It does you no good to waste your time looking at $30,000 trucks when you’re approved for a $12,000 loan. You’ll be disappointed and end up with nothing. Don’t laugh, I’ve had customers who wanted vehicles that they couldn’t possibly afford. The reasonable ones settled for the closest thing on the lot that they could afford, the unreasonable ones left disappointed and empty handed. One kid had his heart set on a 3/4 ton extended cab 4×4 pickup. I showed him both a 1/2 ton and a 3/4 ton. When he realized that the difference in payment was $400, the 1/2 ton that I had recommended to begin with got a lot better looking. I always tried to show people the least expensive vehicle on the lot that fit their stated needs. I got paid on the margin not the price, so shoving someone into a vehicle that they couldn’t afford and probably wouldn’t get financed for was counter productive.
  3. ALWAYS allow the dealership to try and beat your financing. Don’t laugh, even if you are intending to pay cash, let them try to arrange financing for you. You can always pay off the loan balance a couple of weeks later with minimal interest.  They make a significant portion of their income from the financing deals with the banks. They may cut the price of the vehicle if you have them arrange the financing. If you save $1000 off the price of the car by paying $50 in interest for 10 days, you saved $950. Both times that I have financed vehicles in the last 11 years, they have beat my prearranged financing rate by a couple of points. I ended up getting a discount on both the vehicle and the financing.
  4. Unless you have specific needs and a lot of money, be flexible in the vehicle that you get. Sometimes a vehicle that has been sitting on the lot because the color is less desirable can be had for thousands less than one of a different color. One Cadillac dealer on the east coast used to have one painted in an absolutely obnoxious two tone color just so that he could advertise one of that model at a ridiculously low price. (He ran black and white ads that didn’t show the color scheme) A good paint job might cost you $3000, but if you’re saving $15000 off of sticker, why not go for it? At one dealership that I worked at we had a pair of small pickups that had been used as parts trucks between the dealerships in town (the owner had over a dozen dealerships in the Phoenix area alone) and had over 5000 miles on them as a result. Technically, they were new trucks, but selling them would require a substantial discount.
  5. Research what you are looking for and have a clue what it is worth. New cars are easy, used cars are a bit harder but don’t be afraid to use your smart phone to get a value on it. Be reasonable here too. Don’t expect the dealership to sell you a car at wholesale or buy yours at full retail.
  6.  DON’T believe any of the “no money down” BS. “NO MONEY DOWN” DOES NOT MEAN NO MONEY OUT OF POCKET. I’m going to give you a couple of guidelines about financing cars that banks go by.  For used cars, depending on your credit score, they will finance from 90% of the Kelly Blue Book WHOLESALE value of the vehicle, up to 130% of the Kelly Blue Book WHOLESALE value of the vehicle.  That means that unless you have excellent credit, you are going to have to pay for your tax, title and tags out of pocket, as well as some money towards the actual price of the vehicle (your down payment) If you have EXCELLENT credit, they MAY be willing to finance in the TT&L as well as a small profit for the dealership. About the worst thing that you can do is purchase a car with no money out of pocket. You end up paying interest on the tax, title and tags as well as the purchase price of the vehicle. Keep in mind that in most states TT&L may be over 10% of the purchase price of the vehicle. For NEW cars that financing percentage is based off of MSRP, at least most of the time it is.  I say most of the time because on November first, all vehicles for that calendar year are added to the Kelly Blue Book price listing and the banks begin treating them like used cars. That’s one reason why car dealerships are so anxious to eliminate current model year cars in October. They know that they will be harder to get financed after November first. (Unless they’re Fords. Ford motor credit will finance almost anyone with a paycheck and a pulse for a Ford)
  7. Now this is the tough part, but is absolutely essential to be willing to do. If you aren’t getting the deal that you want, stand up, thank them for their time, say that you’re sorry that you can’t come to an agreement, get anything that you have given them back and walk out the door. There are lots of cars and dealers out there. As long as you don’t become emotionally attached, you will find something that fits your  NEEDS at a price you can afford.  On my last car purchase, I got a call the next day telling me that they had found better financing that got my payments down to what I wanted (lowered my interest rate without extending my term) through a different lender if I still wanted the vehicle, all I would have to do would be bring in a pay stub and proof of insurance with my small out of pocket amount.
  8. Here’s one last tip. If you’re looking at new vehicles, research the rebates that the manufacturer has given out on that model in the past. That will indicate whether they will be likely to have rebates on them later. Everyone has heard about how new cars lose thousands of dollars in value when you drive them off the lot. Rebates are a HUGE reason for that. If you are worried about resale value, don’t buy anything that has a rebate on it. Hondas have absurdly high resale values because Honda virtually never gives rebates. If you want a vehicle that you can drive for the next 10 years and don’t intend to trade or sell it until the wheels fall off, find the vehicles with the highest rebates and research their service histories. Annual rebates kill the resale value and MAY be an indication of a need to move slow moving inventory. Don’t be afraid to ask about them. Some places will tell you to negotiate against factory to dealer incentives. I’m not one of them. The dealerships that make a lot of money on those things are selling the cars at cost in order to move the units needed to get a big bonus. Their new car salesmen are killing themselves to pay the rent in most cases.


Thanks for reading this long article. Hopefully it will help you find a good deal on your next vehicle purchase.

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